About Credit Reports | Consumer Information
The modern American market and the entire modern American economy would not have developed if a method had not been invented to track credit information about a borrower and, if necessary, provide it to a potential lender. The name of this invention is credit history and credit score related to it.
Why do I need a credit history?
Credit history is actually a person’s financial reputation. The main purpose is to determine the risk when providing a loan. But in fact, the application of credit history is much broader. Credit history is checked not only by financial institutions when providing a loan. When a person opens a bank account, banks often check his/her credit history. Many others do the same. In this case, they do not even check financial information but that such a person exists and lives at the given address. In addition, credit history is checked when hiring, when connecting electricity, buying a cell phone, buying insurance, renting a house, and much more. It is quite possible to do without a credit history, but then either a headache is added (you need to provide documents, proof of address, etc.) or you have to spend more money – put a security deposit, make a larger downpayment, take a loan on worse conditions.
What is credit history?
Credit history is maintained in the USA by 3 main credit bureaus – Equifax, Experian, and TransUnion. Credit institutions regularly send data to credit bureaus. Besides, credit bureaus exchange information. In addition to credit organizations, other companies, insurance, telephone, employers send data to credit bureaus, but this happens either when requesting information for verification or in case of non-payment. They do not send positive information, so building a credit history simply by renting an apartment and paying bills accurately is impossible, you need to take loans. Non-credit bank accounts are not sent to history. Moreover, sometimes even a secured credit card is not sent.
What’s included in credit history? First of all, it’s personal information – start date of history, name and its variants, SSN, date of birth, all known addresses and phone numbers, known employers, declared income, open credit accounts plus closed accounts, information about inquiries, both credit requests and information, information about bankruptcies, courts, non-payments, and the like negative information. The credit account information includes the name/address of the lender, account number, opening and closing dates, date of last change, account type and type of responsibility (individual, joint account), credit line size, current balance, minimum payment amount, etc… In addition, the history of monthly balances and payments and overdue payments are usually kept.
What is a credit score?
A credit score is a measure of the likelihood that a person will pay off a loan. Each bureau has its own score, the most famous of them is FICO. The FICO score is a number between 300 and 850. The higher the number, the better. A score above 700 is considered a good score.
A score is considered based on many factors – the length of credit history (7-10 years is already good), the number of credit accounts, how long ago the oldest open account was opened and the average age of accounts (more is better), the size of the credit line and the size of balances, the number of requests for loans in recent years, the number of recently opened accounts.
When exactly is your credit history checked?
In the end, I would like to say once again where a good credit history and credit score will come in handy:
- when trying to get a good job (many employers check your credit history);
- when you sign a contract for a certain service – internet, telephone, gas, electricity;
- when you want to rent an apartment in your name;
- when you want to buy a car on credit;
- when you want to get a credit card;
- when you want to get a mortgage for housing;
- when you open your business and rent premises;
- when you want to get a loan for education;
- when you want to get a cash loan;
- when you want to lower the interest rate on existing loans.
How to get full credit reports?
You have the right to request one free copy of your credit report every 12 months from the three major credit reporting agencies. You can order it online from annualcreditreport.com (the only authorized website for free credit reports), or call 1-877-322-8228.
How to start credit history for a newcomer
The most important question is how to start a credit history? You can start a credit history only by obtaining a loan and starting to pay it off. To get a loan, you need a credit history.
The most important advice is not to fuss. You do not need to run around the banks and ask for a loan anywhere. This will only make things worse. Banks see a lot of requests and, accordingly, the likelihood of loan approval drops significantly.
Several options for starting a credit history:
- Secured credit card. You put some amount into a bank account, and the bank gives you a credit card. In case of non-payment, it debits money from your account. The disadvantage of this method is that you freeze the little money you have in place of real credit. In addition, this product is usually intended for people with a bad history and banks love to profit from this. And besides, there are quite a few cases when banks did not send information to credit bureaus, that is, this did not help in any way;
- Cosigner. When receiving a loan, someone with a good credit history acts as a cosigner. This means he of she will be responsible for repayment a loan with you. The question is – do you really need it? Adding money to friendships is the easiest way to lose friends. Therefore, this method is suitable when a working spouse helps start a credit history for a non-working spouse;
- Car loan. This loan is secured by a car. In case of non-payment, the car will be taken away. Therefore, getting such a loan is easier than an unsecured one. There may be different options – to get a loan from a bank/credit union, a loan from a manufacturer. For a loan from the manufacturer, they usually require a FICO of at least 700-720. The easiest way to get a loan is from your credit union. The dealer will most likely find a loan for you, but the conditions will be extortionate. If you put a good downpayment, then the loan will be easier to get and the conditions will be better;
- Shop loans/credit cards. Many shops have their own credit cards. Stores are interested in luring you to their place and, accordingly, give credit cards easier. Often they still give tangible (10-15%) discounts when you ask for a credit card. Therefore, if you are going to buy a TV in BestBuy and it so happened that at this time they give a 10% discount when receiving a credit card, then it makes sense to ask for a credit card;
- Credit cards. It’s harder to get them. Although there is a whole sector for those with a bad history, the conditions there are simply extortionate. The easiest way to get it is from your credit union. In the old days, AmEx and Discover were next on the list.
Tags: credit, credit score, financial reports, loans